Financial markets have responded sceptically to the much-anticipated third leg of Japan’s economic recovery strategy, in another sign of rising nervousness about the government’s ability to implement the plan.

Prime Minister
Shinzo Abe
announced his structural reform plan in Parliament on Wednesday, earlier than expected, in an apparent bid to calm two weeks of sharemarket weakness and volatile bond market trading.

The sweeping blueprint to revive the world’s third biggest economy after two decades of stagnation aims to boost productivity, develop new markets in new industries and overseas and revamp the labour force through greater efficiency and inclusiveness.

It sets a target of 3 per cent nominal growth over the next decade, compared with a small contraction over recent years, and a 33 per cent increase per capita over that time.

Fast growth in Japan could increase exports to Australia’s second-largest trading partner and deregulation would open up new business opportunities for services exporters.

Mr Abe wants 70 per cent of Japan’s trade to be covered by free-trade agreements by 2018, compared with 19 per cent now, which will raise hopes that a trade deal with Australia will be the first to be concluded. “For 20 long years of deflation, Japan suffered a deep loss of confidence," Mr Abe said. “It is now time for Japan to become an engine of global economic growth."

But analysts said the real impact of the promised reforms could not be judged until they were implemented, although the market reaction reflected disappointment at lack of detail.

Sharemarket fell over 3pc

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The sharemarket fell more than 3 per cent and the yen rose, contrary to the government’s policy aim, in a reflection of its status as a safe haven asset in times of financial uncertainty.

“The yen is swayed by the movement in equity prices," Aozora Bank trader Akira Moroga told Bloomberg. “Stocks which rose in anticipation of Abe’s growth strategy were sold off after the announcement lacked any concise measures."

After rising 80 per cent since Mr Abe promoted his reform plans in last November’s election campaign, the sharemarket had already lost 15 per cent in the past two weeks due to concerns abut the viability of the plans.

The promised reforms hit powerful support groups of the ruling conservative party – farmers and doctors – with plans to allow industrial ownership of farmland and some deregulation of medical treatment and pharmaceutical distribution. The number of companies involved in agriculture is projected to quadruple by 2020, potentially reducing the power of ordinary farmers to prevent tariff cuts.

Labour market flexibility to be improved

Labour market flexibility will be improved by shifting tax breaks for companies to retain workers during downturns to improved training allowances.

Mr Abe committed to funding more childcare centres to bring more women into the workforce and encourage more women to seek senior executive positions in companies. Companies are also being encouraged to merge to improve efficiency and overcome the decline in global competitiveness for Japan’s once-dominant manufactured exports.

Government officials said Mr Abe backed corporate tax breaks for new investment and research and development, although details of these proposals would be announced in the future due to their impact on the budget.